Royce Global Value Trust Manager Commentary
article 06-30-2019

Royce Global Value Trust Manager Commentary

The Fund outperformed its benchmark both on an NAV (net asset value) and market price basis during the first half of 2019.

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Fund Performance

Royce Global Value Trust advanced 19.2% on an NAV (net asset value) basis and 18.8% based on market price for the year-to-date period ended June 30, 2019, outperforming its benchmark, the MSCI ACWI Small Cap Index, which gained 15.0% for the same period. The Fund also outpaced its benchmark on an NAV and market price basis for the one- and three-year periods ended June 30,2019.

What Worked... And What Didn't

Nine of the Fund’s 11 equity sectors finished the first half in the black. The portfolio’s two biggest sectors at the end of June, Industrials and Information Technology, were by far its top positive contributors, followed by Financials. Communication Services was the only sector to detract from results, while Utilities essentially landed flat. Based on country of headquarters, the U.S., Canada, and the U.K. contributed most while comparatively minor detractions came from China, Belgium, and Bermuda.

At the industry level, machinery (Industrials) and capital markets (Financials) were the top positive performers. Machinery company CIRCOR International, which makes valves for fluid control systems, went from being a top detractor for 2018 to the top-contributing position for 2019’s first half. Its shares rose sharply after the company received a takeover offer from a larger industrial company in May. Before the end of June, this company raised its equity offer, and we continue to evaluate the situation. Brazil-based TOTVS provides enterprise resource planning and supply chain management software solutions. It benefited from Brazil’s economic and market recoveries, and analysts showed more confidence in its growth opportunities in FinTech. In addition, TOTVS recently completed a follow-on equity raise that strengthened its seemingly fortress-like balance sheet, providing the company with more-than-ample capital for strategic acquisitions. Kardex is a Swiss intralogistics company that manufactures automated storage and materials handling systems. Its stock began to climb in early March following the report of strong full-year earnings, which helped its shares to recover from a steep price decline in 2018’s fourth quarter.


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Conversely, banks (Financials) and media (Communication Services) detracted most at the industry level, though their impacts were comparably low. The stock of U.K.-based Metro Bank fell earlier in the year after the discovery in the first quarter of a historic accounting error relating to how the bank calculated loan risk. We exited our position in June. Virtu Financial, a market maker and liquidity provider, suffered through a difficult market environment for its business model, which tends to do best when equity trading volumes are rising and volatility levels are moderate to high. This was precisely the opposite of what happened in the first half, which featured both low trading volumes and (aside from May) little volatility. We expect these market conditions to normalize, which should support growing profits for Virtu, the portfolio’s third-largest holding at the end of June. Agricultural equipment supplier Lindsay Corporation faced several challenges, including lower farming incomes that have crimped capital spending and led to ongoing weakness in its core market, excess rainfall and flooding in the Midwest, and tariff and trade war woes. In early July, however, Lindsay noted an uptick in domestic irrigation sales, while recent improvement in key crop prices, such as corn, have improved agricultural sentiment. Additionally, the outlook for international irrigation demand remains favorable.

Relative to the MSCI ACWI Small Cap Index, both our savvy stock selection and sector allocation drove outperformance, with the former making the larger contribution. Industrials was the biggest source of our relative advantage, mostly because of positive stock picking in machinery and trading companies & distributors. Both our larger exposure and, to a lesser degree, stock selection helped in Information Technology, where we saw strong results in electronic equipment instruments & components as well as software. Our stock selection in Energy also fueled relative results. Materials detracted most from relative performance in the first half, driven by ineffective stock picks in the metals & mining and containers & packaging groups. Financials also hampered relative performance, as we saw poor results from stock selection in capital markets as well as from the media group in the Communication Services sector.


Top Contributors to Performance Year-to-Date Through 6/30/191 (%)

CIRCOR International0.65
TOTVS0.62
Kardex0.54
KBR0.53
Ashmore Group0.52

1 Includes dividends

Top Detractors from Performance Year-to-Date Through 6/30/192 (%)

Metro Bank-0.28
Virtu Financial Cl. A-0.19
Lindsay Corporation-0.16
TravelSky Technology-0.13
EnerSys-0.13

2 Net of dividends

Current Positioning And Outlook

We believe that small-cap stocks should benefit as the Fed and other central banks seem set to resume their accommodative positions, which will likely include increasing financial market liquidity. At the end of June, it appeared to us that much recent macroeconomic pessimism was fully reflected in valuations—and markets are very good at surprising most investors. With widespread concerns about slowing growth, increasing trade tensions, and the extended economic cycle, the most surprising outcome might be a rally. We see four favorable factors in the current market environment—low inflation, modest valuations, moderate growth, and increasing liquidity—that together paint an attractive picture for global small-cap investors. With so much attention on negative macro issues, we think investors may be missing this positive picture, especially with regard to profitable cyclical businesses.

Average Annual Total Returns Through 06/30/19 (%)

QTR1 YTD1 1YR 3YR 5YR SINCE INCEPT. DATE
RGT 4.9018.840.8812.783.664.06 10/17/13
XRGTX (NAV) 5.3419.190.8811.934.555.47 10/17/13

Annual Operating Expenses: N/A

1 Not annualized.

Important Performance, Expense and Disclosure Information

Important Performance and Expense Information

All performance information reflects past performance, is presented on a total return basis, and reflects the reinvestment of distributions. Past performance is no guarantee of future results. Current performance may be higher or lower than performance quoted. Returns as of the most recent month-end may be obtained at www.roycefunds.com. The market price of the Fund's shares will fluctuate, so that shares may be worth more or less than their original cost when sold.

The Fund invests primarily in securities of small-cap and mid-cap companies, which may involve considerably more risk than investing in larger-cap companies. The Fund's broadly diversified portfolio does not ensure a profit or guarantee against loss. From time to time, the Fund may invest a significant portion of its net assets in foreign securities, which may involve political, economic, currency and other risks not encountered in U.S. investments.

Current month-end performance may be obtained at our Prices and Performance page.

Notes to Performance and Other Important Information

The thoughts expressed in this report concerning recent market movements and future prospects for small company stocks are solely the opinion of Royce at June 30, 2019, and, of course, historical market trends are not necessarily indicative of future market movements. Statements regarding the future prospects for particular securities held in the Funds’ portfolios and Royce’s investment intentions with respect to those securities reflect Royce’s opinions as of June 30, 2019 and are subject to change at any time without notice. There can be no assurance that securities mentioned in this report will be included in any Royce-managed portfolio in the future.


As of 6/30/19, the percentage of Fund assets was as follows: CIRCOR International was 0.8%, TOTVS was 1.0%, Kardex was 1.2%, KBR was 1.2%, Ashmore Group was 1.1%, Metro Bank was 0.0%, Virtu Financial Cl. A was 1.2%, Lindsay Corporation was 0.9%, TravelSky Technology was 0.5%, EnerSys was 0.0%


Sector weightings are determined using the Global Industry Classification Standard (“GICS”). GICS was developed by, and is the exclusive property of, Standard & Poor’s Financial Services LLC (“S&P”) and MSCI Inc. (“MSCI”). GICS is the trademark of S&P and MSCI. “Global Industry Classification Standard (GICS)” and “GICS Direct” are service marks of S&P and MSCI.

All indexes referred to are unmanaged and capitalization weighted. Each index’s returns include net reinvested dividends and/or interest income. Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication. The Russell 2000 Index is an index of domestic small-cap stocks. It measures the performance of the 2,000 smallest publicly traded U.S. companies in the Russell 3000 Index. The Russell 2000 Value and Growth Indexes consist of the respective value and growth stocks within the Russell 2000 as determined by Russell Investments. The Russell 1000 Index is an index of domestic large-cap stocks. It measures the performance of the 1,000 largest publicly traded U.S. companies in the Russell 3000 Index. The Russell Microcap Index includes 1,000 of the smallest securities in the Russell 2000 Index, along with the next smallest eligible securities as determined by Russell. The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity universe. It includes approximately 800 of the smallest securities in the Russell 1000 Index. The Russell 2500 is an unmanaged, capitalization-weighted index of the 2,500 smallest publicly traded U.S. companies in the Russell 3000 index. The returns for the Russell 2500-Financial Sector represent those of the financial services companies within the Russell 2500 index. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such. The MSCI ACWI ex USA Small Cap Index is an index of global small-cap stocks, excluding the United States. Index returns include net reinvested dividends and/or interest income. The performance of an index does not represent exactly any particular investment, as you cannot invest directly in an index. Returns for the market indexes used in this report were based on information supplied to Royce by Russell Investments. Royce has not independently verified the above described information.

This material contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve risks and uncertainties, including, among others, statements as to:

-the Funds’ future operating results,

-the prospects of the Funds’ portfolio companies,

-the impact of investments that the Funds have made or may make, the dependence of the Funds’ future success on the general economy and its impact on the companies and industries in which the Funds invest, and

-the ability of the Funds’ portfolio companies to achieve their objectives.

This discussion uses words such as “anticipates,” “believes,” “expects,” “future,” “intends,” and similar expressions to identify forward-looking statements. Actual results may differ materially from those projected in the forward-looking statements for any reason.

The Royce Funds have based the forward-looking statements included in this commentary on information available to us on the date of the commentary, and we assume no obligation to update any such forward-looking statements. Although The Royce Funds undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise, you are advised to consult any additional disclosures that we may make through future shareholder communications or reports.

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